Mkt may gain steam amid falling Covid cases

On the back of the steady decline in daily Covid-19 infections, rising hope for another stimulus package to support the most affected sectors in the second wave of Covid, excellent Q4 earnings and positive global cues; the market had a historic week. After spending more than three months of consolidation, the benchmark indices ended at a record closing high with the BSE Sensex surging 882.40 points or 1.75 percent to 51,422.88, and the NSE Nifty rising 260.35 points or 1.72 percent to 15,435.65 points.

The broader markets also gained momentum, but underperformed benchmark indices, as the Nifty Midcap-100 index was up 1.1 percent and Smallcap-100 index up 1.83 percent. The momentum may remain positive with continuity in record highs in the coming week amid falling Covid cases, expected state-wise unlocking, and a likely stimulus package by the government, experts feel. RBI in its annual report, has issued caution over the meteoric rise in stock prices at a time when the country's gross domestic product (GDP) has contracted.

It is pertinent to recall that India's benchmark indices have more than doubled from the post- pandemic lows made in March 2020. Several individual companies have seen multi-fold jump in their stock prices. Next week will witness the Monetary Policy Committee (MPC) meet between 2-4 June for the first bi-monthly monetary policy review for the fiscal 2021-22. RBI is expected to maintain an accommodative stance, keep all rates on hold to control the impact of Covid-19 pandemic and localised lockdowns. The central bank would keep a close watch on inflation amid rising fuel prices. So far no regulators felt that the present stock market rally (bubble) could lead to a very major problem.

However, as financial market regulators both RBI and Sebi need to be cognisant of the risk going forward. NSO will release GDP growth estimates for March 2021 quarter as well as

provisional annual estimates for 2020-21 on Monday. The Indian economy is estimated to show growth rather than contraction during January-March (Q4) of FY 2020-21. Rally during the week ended was driven by technology, banking & financials, auto, and infrastructure stocks.

However, there was selling pressure in metals and pharma stocks. Prominent companies including Aurobindo Pharma, ITC, Motherson Sumi Systems, PVR, Bharat Forge, and Bank of India will release their quarterly earnings in the coming week.

Heard on the Street

Ahead of monsoon, resurgence in so-called small-cap stocks is latest triumph for retail traders long derided as 'dumb money'. Many small investors are beating market pros at their own game.

A basket of stocks favoured by individuals has outperformed the broader market since March of last year. Mid-cap and Small-cap stocks popular with individual investors have been on a tear again. This year's reversal has riveted the financial industry and fuelled a surprising revival for some apparently moribund businesses like sugar and others.

The market's upside-down turn is featuring a sustained rally in smaller companies with shaky financials and easy fortunes made by some early buyers of these shares, doesn't make everyone happy. Analysts and portfolio managers recall that the market meltdowns of 2000 and 2008 were preceded by roaring bull markets in speculative areas such as dot-com start-ups and mortgage finance. When those manias ended, the broader economy paid the price. Millions of individual investors stampeded into the market last year, enticed by zero-commission brokerages and easy-to-use investing apps, and their interest helped fuel the post-pandemic rally.

That, and the fervour with which many small investors have piled into market winners, have potentially set the stage for severe selloffs if spooked investors flee hot stocks en masse. That is in part because they are riding one of the most powerful forces in markets over the past year. Momentum investing or buying assets simply because the price is rising. That, in turn, has drawn even more buyers, in part because of a behaviour dubbed FOMO (Fear of Missing Out). Individual investors tend to pour far more money into stocks with high momentum than low momentum. Don't buy 'cats and dogs' (unseasoned stocks). Remember that good stocks always come back – unknown stocks may disappear.

Quote of the week: "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful"- Warren Buffett

Be prepared to invest in a down market and to 'get out' in a soaring market, as per the philosophy of Warren Buffett.

F&O / SECTOR WATCH

Settlement week witnessed exuberant trading in the derivatives segment. Apart from increase in the Nifty futures rollovers, market wide rollovers stood at 93 per cent (last month's market wide 83 per cent) in value terms 154074 crore which is much higher than last month 135039 crore. Also, Nifty / Stock Futures stayed at 0.09 (last month 0.09), suggesting that market participants continue to bet more individual stocks. Rollover data suggests strength in auto, banking and financials, FMCG and IT sectors.

Mild pullback in counters of metals and pharma is likely. The maximum Put Open Interest was seen at 15,300 followed by 15,000, 15,400, and 15,200 strikes, while maximum Call Open Interest was seen at 16,000 followed by 15,500, 15,600, and 15,800 strikes. Call writing was seen at 16,000, 15,500, and 15,600 strikes while Put writing was seen at 15,400, 15,300, and 15,000 strikes. The volatility fell to the lowest level in 2021, supporting the bullish bias in the market. India VIX was down by 8.80 percent from 19.08 to 17.40 levels on a week-on-week basis.

The Implied Volatility (IV) of Calls closed at 16.30 per cent, while that for Put options closed at 17.71 per cent. PCR of OI for the week closed at 1.26. Overall options data indicates that the Nifty could see a broader trading range of 15,000-15,800 levels in the coming sessions. At current level the Bank Nifty also looks strong and has a potential to test 35900-36000 levels in coming days. Traders should adopt a buy on dips strategy and keep stock specific action onto radar.

Automakers will announce the sales data for May 2021. The numbers are likely to decline due to lockdowns and restrictions in various states.

Several companies had shut their plants for weeks amidst the rising rate of infections. In May 2021, 2-wheeler wholesale volumes are estimated to decline by 37 percent MoM, passenger

vehicles around 69 percent, commercial vehicles around 74 percent, 3-wheelers 19 percent, and tractors around 21 percent. After the rally on last Friday, RIL looks extremely charged up and over the next couple of weeks, there is a strong possibility of the stock breaking above the Rs2,200-2,250 zone say punters. Amazon takeover of MGM is not just a US event. Across the world there is consolidation and demand for content media houses.

Rally in Shemaroo is attributed to 'valuation' of the content it holds. A savvy fund manager suggests Zee Entertainment as a very strong buy. All weak hands were shaken out in the recent fall upto Rs175. Possible takeover of 'content' rich media houses by Amazon to consolidate its Amazon Prime OTT business is not ruled out. Jio is also in the race to grab a pie in this space.

Zee can climb to new highs in coming weeks on heightened interest. Stock futures looking good are IGL, L&T Finance, RIL, Shriram Transport, M&M, Voltas and Zee Entertainment. Stock futures looking weak are Apollo Hosp, HUL, Navin Flouro, Dr Lal Path Labs and UBL.

STOCK PICKS

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JD Omni

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